The proposed sale of the Patrick Rehab-Wellness Center seems to be off the table for now, but what remains is a much bigger issue – how to help Lincoln Medical Center survive difficult times.
In a series of Lincoln County Financial Management Committee and Budget Committee meetings last week, frustration was evident as officials discussed the proposal to sell the Patrick and the dire financial condition of the hospital, both operated under the umbrella of the county owned Lincoln Health System, which also includes Donalson Care Center, the Ambulance Service, and Home Health and Hospice.
Those meetings climaxed Thursday night as budgeters voted to form a committee and assign it the task of finding a consulting firm that would conduct an independent operational analysis of Lincoln Medical Center. With that, officials hope to be able to better address options as to its future.
The committee will be comprised of Cole Bradford, county finance director; Dr. Bill Heath, director of county schools; Commissioner Anthony Taylor, chairman the health system’s Board of Trustees; Commissioner Ricky Bryant, a member of the Budget Committee; and Commissioner Doug Cunningham, a member of the Financial Management Committee.
Earlier in the week, both committees agreed to put the proposed sale of the Patrick on hold for now. They also voted to not sell three other “surplus” properties – the former Home Health & Hospice building on Wilson Parkway, Lincoln Care Center on Amana Avenue, and the former home of the Ambulance Service located behind the care center – until approval is received from Tennessee’s attorney general. That approval is required under the Public Benefit Hospital Sales and Conveyance Act of 2006, said County Attorney Ed Simms, explaining the attorney general has the sole authority and legal standing to act in the community’s interest when it comes to the sale of charitable assets.
While Lincoln Care Center was closed last fall, the beds there remain certified by the state, said Candie Starr, CEO of Lincoln Health System, in Tuesday’s Financial Management Committee meeting. The process of the state decertifying those beds still lacks about 30 days, she said, adding that the cost of keeping those three buildings amounts $18,000 per month. That, though, is a drop in the bucket when it comes to the operations of the system.
Starr and Bob Lonis, the health system’s CFO, faced a wide range of questions Tuesday, including questions about care center occupancy, staffing concerns, changing percentages and cost allocations, the estimated cost of capital needs, and the profitability of various entities under the system’s umbrella. According to discussion, the Patrick overall is profitable – revenues generated by physical therapy more than compensates for the losses of the wellness side of the facility. A similar scenario exists at Donalson Care Center where revenues generated by skilled care make that facility profitable.
“If Donalson is making money, however that may be, and if the Patrick as a whole is making money, the only problem we’ve got is the hospital,” said Commissioner Ricky Bryant. “Year before last, you all said you were going to make $4 million, and last year, you said it should be about $3 million – that’s $7 million – and from what little bit of scratching out I can do with the numbers, you’ve got about $3 million and some change in the bank.
“We’re that close to being broke, it’s just that simple, and we were supposed to make $7 million in the last two years,” he continued. “The consultant is fine, but I’ve been hearing we’re going to be okay, that we’re going to come out of this, but we’re not okay and we’re not coming out of it. We’re getting worse and worse and worse.”
Losses over the last three years amount to $7.8 million, officials said in a later meeting. In addition, over recent years the system has used $16 million in revenue from its care centers to subsidize other operations.
Recommendations made by a consultant for the health system were referred to several times during the meeting, and Starr said that while action has been taken, other efforts to drastically reduce costs will take time due to contractual agreements and the like.
“I think we can see that selling the Patrick is probably not on the table at this time,” said Lincoln County Mayor Bill Newman. “Here’s what is on the table, if we lose that hospital, our community is not going to be the same. We won’t recruit industry, we won’t have the people move here who are retired, I mean, there’s not an option about us keeping the health system. We’ve just got to figure out how to make it work, and I think it starts with you all ... You can cut a million dollars tomorrow by doing some drastic things.”
“Bob and I did not wake up and decide we wanted to sell the Patrick, so I feel the passion in the room here, but I want to make a couple of things clear,” said Starr. “The consultant was trying to find every way that we could to take any costs out of the way without going against the bond covenant. I know you all feel we are not focusing on the hospital, and I can tell you that is not true – we are – but selling buildings that make no sense for us to keep are easier things to check off, because everything else requires operational packages, unwinding contracts, and a lot of things on the hospital side that just can’t happen immediately.”
Budgeters had recessed their session Tuesday night to Thursday evening, and as discussion resumed, Bryant said that the health system could be made to adhere to the 1981 Financial Management Act, adopted by the county in January of 1993, meaning that the system’s financial operations could be taken from the system and added to the responsibilities of the county finance department. That would require a two-thirds’ vote by the County Commission prior to the start of the new fiscal year.
“The fact of the matter is that here in about six months, if something doesn’t happen, we’re going to be in a serious situation,” he said. “I mean it’s serious now, but in six months, we’re going to have zero dollars ... I’m not necessarily suggesting we go with the ‘81 act, but I am suggesting we do something.”
Newman noted that the health system has made application to the state to participate in a program that will see 10 rural hospitals selected to receive financial assistance in securing a third-party consulting firm’s expertise. There is no guarantee, though, he said, that LHS would be selected.
“The wheels of the state turn very slowly,” said Bryant, going on to say the county should pursue its own study or place the system under the financial management act. “If we do that, we’re going to know where the money goes ... The people are the ones who own the hospital, and basically at this point, they [the staff at the hospital] work for the county commission.”
Commissioner Doug Cunningham also called for an independent study to evaluate options, saying that the health system has been generally on budget until the last three years – “We can’t stand another year like this year,” he said.
Bryant noted that the health system should have had its FY 2019-2020 budget in the county’s hands by May 1, but to date, it hasn’t been received. It was also noted that the health system’s board has not received the budget as well.
“I agree that we have big problems up there,” said Commissioner Steve Graham. “Another thing that concerns me is the debt service ... Regardless of running it, that debt has got to be paid. The county is responsible for that debt. When it was built, we had to go along with that to get a better rate – the county is backing it, so if they don’t make a debt service payment, who are they going to come looking for, and you know what it’s going to cost us on the tax rate to pay a million dollars? ... You’re talking about 40 cents for one year’s payment.”
The debt service payment, which amounts to between $1.1 and $1.2 million, relates to the construction of the current hospital, which opened in September of 2001.
“I’ve gotten as good of care up there as I believe you could get anywhere in the country,” said Bryant, referring to care he has received at the local hospital, but he went on to question management’s decisions when it comes to staffing matters and whether the system is top heavy. “If people are not going, they’re just not going, and there’s a reason for that, and I don’t know how to fix it, but I think we need to get someone that knows what they’re doing to conduct an independent audit or analysis, not only on the finances but on the services, too, and advise us.”
“Until we do something like this and get it under control, the problem is going to grow bigger,” said Commissioner Grady Reavis.
“You all have seen my charts ... We are at that point,” said Cole Bradford. “Ricky said three years in a row we’ve been told something that’s not been what’s happening. My thought is how did we get here in crisis mode, and really we didn’t know about it collectively ... We got here because as the budgets were being presented, we were told they were going to get it turned around and make a lot of money, and then 18 months later, when I get the audit, we learn that we have a $7 million negative variance. The next year, we’re told we had a bad year, things didn’t work out like we wanted, however, we got the plan to turn it around and we’re going to make $2 million. Then 18 months later, we learn they’ve lost another $3 million dollars.”
“I don’t want to sit here and pile on our hospital completely or our hospital board or boards in the past,” said Cunningham. “This is a national thing ... 21 percent of U.S. rural hospitals are at a high risk of closing, and that’s across the country. The problems are well above what we have the ability to fix. You get down in the South, and it’s even worse …
“Getting back to what Ricky originally said, we need to find somebody that is really good at this stuff, that can analyze it for us, and if we pay them separately out of the commission, I’m willing to do that ... We haven’t got time to fool around, we need to know.”
Estimating that such an analysis could cost in the neighborhood of $30,000 to $50,000, officials discussed the search and other elements that should be taken into consideration – “I think at this point every option is on the table,” said Bradford. “Can we make it survive, can we make cuts, and are there other options ... What I don’t want to see is us midstream, if things continue with what we think is going to happen and what is happening, being in the situation where before we know it, doors are closed, people and employees gone, people not getting paid, bills not paid, and you all are on the hook for $8 million in debt.”
Discussion also alluded to the commission’s right to have access to detailed monthly financial reports, inspection of any records, including bank records or other financial records, and salaries – “There’s no end what the county commission can ask for,” said Bryant.
After establishing the committee to search out a firm to conduct an analysis, the committee recessed its meeting to 6 p.m. Thursday, May 16. The plan is to have a consulting firm identified in time for a recommendation to the full commission at its May 28 session.
Throughout Thursday evening’s budget session, officials referenced an interview that Starr had done with National Public Radio which aired early last week. While the segment focused on the state’s program to help rural hospitals hire outside consultants, it was Starr’s comments about how it might be easier for her board of local doctors and commissioners to hear an outsider say the need to make tough decisions that didn’t sit well with officials.
“It happens in my household, too,” she had said in the interview. “I tell my husband something, he doesn’t listen. Then my sister-in-law tells him the same thing, then all of a sudden, it’s gospel. It’s kind of the same thing here.”
“This commission has successfully built a $50 million-plus budget for as long as I’ve been around … because we’ve worked together as a whole team,” said Bryant. “We have a triple A credit rating … We may be the dummies, but we’re building pretty good budgets, despite some difficult times including a recession, and it wasn’t any one person, it was all of us doing our jobs … I’d like for somebody to work with us a little bit and not call us a bunch of dumb husbands and definitely not laugh when they come into a financial management committee when you’re $16 million-plus in the hole with the nursing homes and $3 million away from completely broke.”